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Moody’s sees trouble ahead

Tuesday, Feb 24, 2015

* From Moody’s. ..

Moody’s has issued a short comment (attached) regarding Governor Rauner’s initial proposal to close a projected 21% budget gap for the State of Illinois (rated A3/negative outlook) in the coming fiscal year. Rather than raising revenue, the proposed budget would cut pensions and employee health insurance spending, local government subsidies, Medicaid and other services, and rely on spending restraint that, given political and legal challenges, will prove hard to implement. Many of the Republican governor’s proposals, we believe, will face strong opposition from Democrats, who retain control over both legislative chambers. To the extent they are enacted, however, the funding reductions would shift fiscal pressure from the state to local units of government, public universities, healthcare providers and other entities that rely on state funding.

The proposed funding reductions to local governments, public universities and healthcare providers would all require approval in the legislature, where Democrats control both chambers by veto-proof majorities. This political landscape may make it difficult to enact even a few key elements of the governor’s proposal, much less the entire plan to achieve balance without raising revenues. The governor has indicated a willingness to discuss tax reform and increasing revenue by broadening the sales tax base to include services.

Under the fiscal 2016 budget proposal, local governments would see their state-shared income tax distributions cut in half, to $600 million. Among Moody’s-rated Illinois cities, income tax receipts accounted for a median 10% percent of operating revenues in fiscal 2013. The ability of local governments to offset a cut in income taxes with other tax increases varies widely. While home-rule cities have wide revenue-raising flexibility, some non-home-rule municipalities are subject to tax caps under the Illinois Property Tax Extension Law Limit.

Of the proposed fiscal 2016 savings, almost half, or $2.9 billion, would come from retirement benefit cuts. These consist mainly of pension reforms that Rauner’s team believes are more likely to withstand legal challenges than the state’s 2013 reforms now being challenged in court.

- Posted by Rich Miller        

42 Comments
  1. - Oswego Willy - Tuesday, Feb 24, 15 @ 2:50 pm:

    ===The proposed funding reductions to local governments, public universities and healthcare providers would all require approval in the legislature, where Democrats control both chambers by veto-proof majorities. This political landscape may make it difficult to enact even a few key elements of the governor’s proposal, much less the entire plan to achieve balance without raising revenues.===

    Rauner needs 60, Rauner needs 30.

    Moody’s “can count”.

    Math is math is math…is math.


  2. - Wordslinger - Tuesday, Feb 24, 15 @ 2:51 pm:

    Half of “savings” coming from cuts that would be challenged in court. That’s not real.


  3. - How Ironic - Tuesday, Feb 24, 15 @ 2:53 pm:

    Wonder if Rauner has called up Moody’s and asked if they have a ‘problem’ yet? He never loses right?


  4. - Anonin' - Tuesday, Feb 24, 15 @ 2:55 pm:

    So Moody’s ( who like S&P have zero credibility given their mortgage bond scandals) think the Ds will resist.Are they leaving GOPies off the hook?

    Apparently they missed all the GOPie suggestions that all this is just a “starting point” or a “proposal”.

    They overlooked BVR has already rented two House votes and is working on others.

    And of course they missed his pledge to freeze property taxes so local governments get a larger anterior shellacking from BVR.


  5. - Norseman - Tuesday, Feb 24, 15 @ 2:55 pm:

    Translation: What a stupid budget from somebody who is supposed to be a businessman.


  6. - chi - Tuesday, Feb 24, 15 @ 3:00 pm:

    Last week in the backroom at Saputo’s, Rauner met with Moody’s, Fitch, and S&P. He told them he would need 10 rating upgrades this spring. Not 9 upgrades. 10. And if it’s less than 10 upgrades, they each are going to have a problem.


  7. - Oswego Willy - Tuesday, Feb 24, 15 @ 3:01 pm:

    - chi - wins.

    Rauner might be opening “envelope #2″ before March.


  8. - I B Strapped - Tuesday, Feb 24, 15 @ 3:03 pm:

    AKA, that’s got as much chance as a snowball in Hades.


  9. - Norseman - Tuesday, Feb 24, 15 @ 3:11 pm:

    LOL, chi. Good one.

    The problem for Gov. Moneybags is that Moody’s has seen the wrath of the Feds. Between Moneybags wrath and the Feds’, I think they’ll take on Moneybags.


  10. - Oswego Willy - Tuesday, Feb 24, 15 @ 3:19 pm:

    (This is SNARK. It’s not real. For amusement purposes only.)

    RAUNER DISMISSES MOODY’S WARNINGS

    For Immediate Release

    February 24, 2015

    Springfield, IL - Today, Governor Bruce Rauner (Raunerite - 9 homes) took to task the ratings Moody’s Corporation (NYSE: MCO) published today, forecasting what they believe might be troubled times facing Illinois.

    “It’s baloney,” said Rauner, from the front seat of his trashcan can, on the way to get a Portillo’s strawberry shake. “I’m workin’, fightin’, and shakin’ up Springfield. It’s gonna have pain, but I gotta get this house in order, and I have the dogs livin’ in the mansion so there’s thst too.”

    Rauner reiterated that he has 67 “yes” votes whenever, and wherever he wants to put them. “These votes are gonna lead to me passin’ bills, passin’ budgets, but I won’t pass up a chance to wear my Carhartt.” Rauner then stated, “I have been successful at everythin’ I’ve ever done. The Democrats, and Union Bosses better learn that. The only compromisin’ I haveta do is compromisin’ my use of the letter ‘g’ for the next four years.”

    Governor Rauner plans to tour the state drumming up support for his budget and reforms, in hopes that by not having to threaten anyone before March, the proposals will not be voted on before tweaking or vetting.

    ###

    (This is snark. It’s not real. Don’t even pretend it is)


  11. - Langhorne - Tuesday, Feb 24, 15 @ 3:21 pm:

    As OW says, this is governin’, not Campaignin’, and it’s hard. Rules. Laws. Constitution. Judges. Votes. And math. Esp math.

    Nice to see someone call bunk on his nonbudget.


  12. - Long time listener - Tuesday, Feb 24, 15 @ 3:22 pm:

    Everyone writes of local units’ varying abilities to raise revenue to male up for the cuts, but won’t many of them, political animals they be, clamor to save money by getting rid of the pesky “prevailing wage” on projects, thus giving the governor support for his local right to work effort.


  13. - DuPage Bard - Tuesday, Feb 24, 15 @ 3:32 pm:

    Maybe the Gov can Executive Order his own ratings agency?


  14. - forwhatitsworth - Tuesday, Feb 24, 15 @ 3:36 pm:

    Who needs Moody’s? Most Capitol Fax contributors have been saying the exact same thing!


  15. - Arsenal - Tuesday, Feb 24, 15 @ 3:38 pm:

    LTL, no, they won’t. Look at Springfield’s mayoral election, even the known Republicans aren’t supporting RTWFL. When you’re that close to the ground, you really try to avoid problems with unions.


  16. - The Dude Abides - Tuesday, Feb 24, 15 @ 3:44 pm:

    @long time listener, even if most local governments did what you say, which isn’t very likely, paying workers a few dollars an hour less wouldn’t come close to making up what they stand to lose from Rauner’s plan.
    As someone previously noted, Moody’s knows how to count. If the Democrats decide to give Rauner most of what he wants in order to let him hang himself, the big downside is that it will greatly damage this state.


  17. - dupage dan - Tuesday, Feb 24, 15 @ 3:46 pm:

    Moody’s, S&P, I thought we didn’t have a high regard for these ratings agencies. Look, we all know the facts, we all know what Rauner is proposin’ why do we need Moody’s opinion - is that like more proof? If Moodys dropped the bond rating and a sale took place the next day the bonds would go like hotcakes, right? Who cares if it costs more for Illinois to service the debt, it’s not like they haven’t paid out on their pensions ever, have they?

    Rauner won’t be able to pass this draconian budget cause the dems control the GA. Veto proof majorities, right? They could pass what folks here suggest is absolutely necessary - a tax hike. They could do that, couldn’t they……ooops, never mind. They couldn’t - not even with Pat Quinn promising he would sign it in a flash. Governin’ is hard, isn’t it MJM?

    Nothing wrong here, move along.


  18. - Tim Snopes - Tuesday, Feb 24, 15 @ 3:47 pm:

    Like many political observers outside the dome are prone to have done, Rauner has miscalculated the financial and political complexities of governing.
    In his campaign to run Springfield “like a bidness,” he caught the car and he and his GOP supporters are about to roll it down a hill into a ravine.
    Still waiting for the plan.


  19. - Cubswin7 - Tuesday, Feb 24, 15 @ 4:10 pm:

    The businessman Governor’s proposed budget does not relieve concerns of the Moody’s Investors Service bond rating analysts. The other two bond rating agencies, Fitch Ratings and Standard and Poor, have yet to weigh in. Governor Rauner has spoken with all three rating agencies about his “turnaround budget” after presentation to the General Assembly. With this skeptical Moody’s assessment, perhaps we shall see whether Rauner feels compelled to signal to his GA Republican caucus the necessity to stay on board with his fiscal priorities. Is the Moody’s report enough to prompt any Republican lawmakers to make public comment on the Rauner budget? Methinks we are about to learn whether the Governor has learned anything about governing since his swearing in.


  20. - Tim Snopes - Tuesday, Feb 24, 15 @ 4:10 pm:

    Son,
    You are an excellent example of the hubris that $27 million in personal campaign donations can buy in an election. In my humble opinion.
    Very Truly Yours,
    Tim


  21. - Bemused - Tuesday, Feb 24, 15 @ 4:16 pm:

    Bruce says there would be a 20% savings on wages if we do away with prevailing wage. I have heard that number before from the ABC. I would like to see the documentation on that. Beyond that there are non-union workers who happen to like working for prevailing wage and may not like the Governor messing with that. Some of these non-union folks bring home more than their union counterparts due to receiving the benefits part of the package on their checks.


  22. - Enviro - Tuesday, Feb 24, 15 @ 4:19 pm:

    Illinois needs more revenue not funding reductions to local governments, universities, and Medicaid. Illinois is a first rate state. This budget plan could turn Illinois into a state that nearly resembles a third world nation.

    Quinn worked to reduce government costs and paid for it by losing the 2014 election. Those reductions include billions of dollars cut from medicaid and the 2011 pension bill (with tier two) which reduced to state pensions for new employees. The cuts have been made. Now we need to increase the state income tax and the income tax base.


  23. - Joe Biden Was Here - Tuesday, Feb 24, 15 @ 4:25 pm:

    Trouble ahead, trouble behind and you know that notion just crossed my mind


  24. - Rich Miller - Tuesday, Feb 24, 15 @ 4:39 pm:

    ===that nearly resembles a third world nation.===

    Oh, please. Have you ever spent any time in a real third world nation?


  25. - Enviro - Tuesday, Feb 24, 15 @ 4:45 pm:

    I’ve driven through the inner city of Chicago.


  26. - Nothin's easy... - Tuesday, Feb 24, 15 @ 5:19 pm:

    One must appreciate the intended inefficiencies of the United States constitutional democracy wherein patience, participative leadership and strategy trump the aggressive, arrogant and vain.


  27. - Buzzie - Tuesday, Feb 24, 15 @ 5:22 pm:

    Rauner will learn that Illinois is not Wisconsin or Indiana or Michigan or Ohio.


  28. - Crispy Critter - Tuesday, Feb 24, 15 @ 5:28 pm:

    Yes I’m stuck in the middle with you,
    And I’m wondering what it is I should do,
    It’s so hard to keep this smile from my face,
    Losing control, yeah, I’m all over the place,
    Clowns to the left of me, jokers to the right,
    Here I am, stuck in the middle with you…….and so it goes.


  29. - DuPage Dave - Tuesday, Feb 24, 15 @ 5:32 pm:

    Enviro- get a grip.


  30. - MrJM - Tuesday, Feb 24, 15 @ 5:52 pm:

    So “hoping in one hand” ain’t good enough for Moody’s?

    – MrJM


  31. - walker - Tuesday, Feb 24, 15 @ 5:59 pm:

    Even with a highly cooperative Dem caucus in the GA, Rauner’s budget would still have so many holes from legal and math issues, that Moody’s is right to be cautious.


  32. - AnonymousOne - Tuesday, Feb 24, 15 @ 6:05 pm:

    Maybe skirting legalities is how things get accomplished for some people………..it just doesn’t seem to be as easy in the public sphere.


  33. - PublicServant - Tuesday, Feb 24, 15 @ 6:26 pm:

    Hello Ty? I need ya to get on the horn to those Moody punks and lettim know who the new sheriff is. They’re still on the last chapter where you told’em Illinois was going down the tubes, but now, with my supply-side austerity budget in place, I need total enthusiasm for my cuts with a warning that if the legislature bawks at any of them, that illinois is doomed to failure. Ty, get on the horn. I don’t like their attitude. Fix it. Now! Toady.


  34. - Jack Stephens - Tuesday, Feb 24, 15 @ 6:27 pm:

    Interesting….


  35. - Filmmaker Professor - Tuesday, Feb 24, 15 @ 7:20 pm:

    Isn’t his budget the very definition of “kickin’ the can down the road”? In this case, the road being local governments?


  36. - Excessively Rabid - Tuesday, Feb 24, 15 @ 8:09 pm:

    You can say what you want about the rating agencies, but I’ll tell you investors trust them way more than they trust any bond issuer. In this case, the agency is saying the issuer is all but delusional, and it’s a risk buying their bonds. And looking at how Illinois pols view constitutionally protected pension obligations, it takes little imagination to see how easy they would find it to stiff bondholders. These goofballs need to grow up, raise some money, and use it to pay their bills, not to find some new way to buy votes.


  37. - Anonymous - Tuesday, Feb 24, 15 @ 8:16 pm:

    Does anyone predict furloughs in the near future?


  38. - Long time listener - Tuesday, Feb 24, 15 @ 8:47 pm:

    Arsenal and The Dude Abides - I tend to agree with your responses, but I think the point I am trying to convey is about how the governor would go around sellng this reduction, as an opportunity to follow his lead by taking labor costs down. He has already proposed spreading these ideas door-to-door if you will, and I am of the opinion that we may see an influx of groups that Ms. Arduin brought to the statehouse offering local politicians a ” business led ” solution to raising taxes


  39. - See the forest - Wednesday, Feb 25, 15 @ 5:41 am:

    Headline from the Huffington Post:
    “IL Governor Rauner Gets $750,000 Tax Break, Proposes Slashing Services to Middle Class and Poor”
    Rauner’s feet should be held to the fire for refusing to address the revenue side of the equation. In Rauner’s greedy, venal mind, it is far better to let a poor person freeze to death than to ask him and his plutocratic ilk to pay a dime more in taxes.

    Welcome back to the Gilded Ages, Illinois.
    Far better to amend the Constitution, institute either


  40. - See the forest - Wednesday, Feb 25, 15 @ 5:43 am:

    (oops!) Far better to amend the Constitution, institute a progressive income tax and also a Financial Transaction Tax on the trillions that flow through that corporate welfare king, the Chicago Mercantile Exchange.


  41. - VanillaMan - Wednesday, Feb 25, 15 @ 7:49 am:

    Lets take this apart.

    Many of the Republican governor’s proposals, we believe, will face strong opposition from Democrats, who retain control over both legislative chambers.

    I’ve been saying that the new governor is a “solo” act facing a veto-proof GA controlled for the past decade by his political foes. He needed to be a governor who looked outside politics in an attempt to charm his political opposition away from partisan towards partisan compromises. Rauner has failed so far in accomplishing this, any future attempts to do this will be looked at cynically as a man drowning in governing failure and being forced to try something new. Rauner has set the wrong tone to be a GOP governor in this BLUE state.

    Are they leaving GOPies off the hook? What GOPies? Since 2002, the GOP hasn’t mattered here. What part of veto-proof Democratic rule are you unclear about? Sad to say, but since his inauguration, the governor seems to have forgotten just how powerless the GOP is in the GA, and has overrated how powerful the governor of Illinois is.

    Since Ryan became preoccupied with legal problems fifteen years ago, Illinois has been on auto-governor. Blagojevich demonstrated a need for the political players in Illinois to form a working government around the Office of the Governor. After fifteen years of having felons or incompetents in Office, the GA and the other statewide offices have discovered how to work without a governor around.

    Ryan, Blagojevich and Quinn created a power vacuum within the governor’s office. It has been filled by the legislature and statewide officers. They won’t want to give that power back. Especially to a new guy from the wrong political party who seems to go out of his way to destroy any political base of support he received just a few months ago.

    Rauner has needed to prove that he can be a governor of consequence, and so far, he has proved otherwise. Each misstep he takes will be doubly hard to fix. He started in a hole, and dug himself in deeper. It will be hard for the political power holders in Illinois to give him a piece of the action now that he has blundered so badly right out of the gate.

    Moody is right.


  42. - Oswego Willy - Wednesday, Feb 25, 15 @ 7:56 am:

    ===Rauner has set the wrong tone to be a GOP governor in this BLUE state.===

    Your memory fails you, as usual, - VanillaMan -.

    You called Rauner a “light blue” governor. Remember? I do.

    Dope.


Sorry, comments for this post are now closed.


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